Partnership

Dissolution

Easy

common

A partnership firm is dissolved compulsorily in the following cases:

(A) when all the partners or all but except one partner, become insolvent, rendering them incompetent to sign a contract:

(B) When the business of the firm becomes illegal

(C) Change in existing profit sharing ratio among partners

(D) When some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (B) and (C) only

(A), (B), (C) and (D)

(B), (C) and (D) only

✅ Correct Option: 1

Compulsory dissolution of a partnership firm occurs under Section 41 of the Indian Partnership Act, 1932 when certain events happen that make continuation of the firm impossible or illegal.

Analyzing each case:

(A) All partners or all except one become insolvent

When partners become insolvent, they are legally incompetent to contract. This renders the partnership contract void and the firm must be dissolved compulsorily. This is a valid case of compulsory dissolution.

(B) Business becomes illegal

When the business itself becomes unlawful (e.g., trading in banned goods), the partnership cannot continue legally and must be dissolved compulsorily. This is a valid case of compulsory dissolution.

(C) Change in profit sharing ratio

This is merely a reconstitution of the partnership where the existing partnership terms are modified but the firm continues. The partnership is not dissolved; only the agreement is altered with mutual consent. This is NOT compulsory dissolution.

(D) Event making business unlawful to carry on

When external circumstances make it illegal for partners to continue business together (like one partner becoming an alien enemy due to war), the partnership cannot legally exist and must be dissolved compulsorily. This is a valid case of compulsory dissolution.

Statement (C) represents reconstitution, not dissolution. Only statements (A), (B) and (D) are cases of compulsory dissolution.

Correct Answer: Option 1 - (A), (B) and (D) only

2025: 24 May Shift 1

Dissolution of a firm takes place on the happening of certain contingencies. Choose them from the following :

(A) By the death of a partner

(B) By the adjudication of a partner as an insolvent

(D) If constituted for a fixed term, by the expiry of that term

Choose the correct answer from the options given below:

2025: 2 June Shift 2

Match List-I with List-II

List-I	List-II
(Events)	(Result.)
(A) Termination of business.	(I) Not Possible In Dissolution Of Partnership.
(B) Continuation Of Business	(II) Not possible in the dissolution of a firm.
(C) Intervention of court.	(III) Dissolution of firm
(D) Continuation of books of accounts.	(IV) Dissolution of partnership.

Choose the correct answer from the options given below:

2026: 23 May Shift 2

Select the correct sequence of payment of the following from the amount realised by the sale of assets on the dissolution of a partnership firm.

A. Partners' capital

B. Residue (if any)

C. Partner's loan

D. Outside liabilities of the firm

Choose the correct answer from the options given below:

2025: 29 May Shift 2

Stock at the time of dissolution was appearing in books at Rs 50,000. Half of the stock was sold at a discount of 20% and the remaining was taken over by one of the partners at a 10% discount. What amount was received in cash at the time of realization of stock.

2026: 24 May Shift 1

Sharan, Raman and Manan are partners sharing profit and losses in the ratio of 1:1:1. Due to heavy losses, they decide to close their business. At the time of dissolution, Sharan agreed to bear all realisation expenses. Realisation expenses were to be paid by the firm. For the service Sharan is paid Rs.6,000. Actual expenses on realisation paid by the firm amounted to Rs. 9,000. Realisation A/c will be:

2026: 13 May Shift 1

At the time of dissolution of a partnership firm goodwill does not appears in the balance sheet but a partner took over it at Rs. 60,000 for cash, how this transaction will be recorded in firm's books.

Solution

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